1. The Zorastrian Building society Ltd., Bombay, (assessee), owned certain buildings which were let out to tenants. For the assessment year 1951-52 the Income-tax Officer disallowed deduction on account of urban immoveable property tax on the ground that it was, tax levied by the Bombay Government and not by the local authority. The assessee's case was that the Urban immoveable property tax was levied and collected by the Municipality and paid to the Provincial Government and that, therefore, it was entitiled to deduction under the second proviso to S. 9(2) of the Indian Income-tax Act, 1922. On appeal the Appellate Assistant Commissioner upheld the Income-tax Officer.
2. The Appellate Tribunal upheld he contention of the assessee.
3. The following question of law was referred to the high Court:
'Whether on the facts of the case the assessee is entitiled to claim deduction of half of the urban immoveable property tax under the third proviso to S. 9(2) of the Income-tax Act from its income from property?'
4. The question that arises in this reference is whether the assessee is entitled to deduct half the urban immoveable property tax for the purpose of determining the bona fide annual value of the property belonging to the assessee. This question can be determined on a construction of the third proviso to Section 9(2) of the Indian Income-tax Act and that provides :
'Provided further that where the property is in the occupation of a tenant and the taxes levied by any local authority in respect of the property are under the law authorising such levy, payable wholly by the owner or partly by the Owner and partly by the tenant-
(a) one-half of total amount of such taxes or one-eighth of the annual value of the property, whichever is less, shall, notwithstanding anything contained in such law, be deemed to be the tenant's liability of such taxes, and
(b) in determining the annual value of the property with reference to the rent payable by the tenant, a deduction shall be made equal to the part, if any, of the tenant's liability which is borne by the owner.'
Therefore, before a deduction can be made for the purpose of ascertaining the bona fide annual value, the conditions necessary are : (1) that there must be a tax levied by a local authority, (2) the tax must be levied by the local authority under some law which authorises the local authority to levy the tax, and (3) that exemption which can only be upto one half, can only be claimed provided the landlord discharges any part of the tenant's liability with regard to that tax, which is deemed to be one half.
5. Now, the whole question turns on the meaning to be given to the expression 'levied'. It is contended by the Department that 'levy' in this context means 'impose' and it is contended on behalf of the assessee by Mr. Palkhivala that 'levy' means 'collect'. It is undoubtedly true that 'levy' has been used in both senses depending upon the context in which the expression is used, and what we have to decide is whether in the context in which this expression is used it means 'collect' or it means 'impose'. Now, this urban immoveable property tax in respect of which exemption is claimed by the assessee was imposed by the Bombay Finance Act, 1932, and the charging section is Section 22 which provides that there shall, subject to the provisions of Section 23, he levied and paid to the Provincial Government a tax on buildings and lands hereinafter called the urban immoveable property tax.
The Legislature having levied this tax, it set up a machinery for the collection of the tax and the agent that it appointed for collection of the tax was the Bombay Municipality. Section 24AA provides :
'The collection of the Urban Immoveable Property tax under Section 24 and the recovery of the penalty under Section 21A on behalf of any municipality shall be made by the appropriate municipal authority, appointed to collect the property tax on behalf of such municipality under the law under which such municipality is constituted.'
Therefore, as far as this particular Act is concerned, a clear distinction is drawn between the levying of a tax and the collecting of a tax. But levying is by the Provincial Legislature for the purposes of the Provincial Government, and the collection is by the municipality. As far as the Bombay' Finance Act, 1932, is concerned, it could 'not possibly be urged that the expression 'levy' used in this Act meant to collect, because the Legislature has drawn a clear distinction between 'levy' in the sense of 'impose' and 'collection' - in its normal natural sense. But what is urged is that whatever may be the meaning of 'levy' in the Bombay Finance Act, the expression has a wider connotation in the Income-tax Act.
6. Now, in order to understand this contention, it is necessary to look at the legal history of the enactment of this proviso. This proviso was enacted by the Indian Income-tax (Amendment) Act (LXXI of 1950) and it came to be enacted under the following circumstances. The Bombay High Court took the view that the urban immoveable property tax and the property tax levied by the municipality was not an annual charge within the meaning of Section 9(1)(iv) and therefore the tax paid by an owner on a property was not a permissible allowance under Section 9(1). The Supreme Court in-- 'New Piece Goods Bazaar Co. Ltd. v. Commr. of Inc.-tax' AIR 1950 SC 165 (A), took a different view and the view it took was that both the urban immoveable property tax and the property tax levied by the municipality was an annual charge.
In view of this decision of the Supreme Court an explanation was added by the Income-tax (Amendment) Act, to which reference has just been made, to Section 9(1)(iv), and the explanation provided that
'For the purposes of clause (iv) of this sub-section the expression 'annual charge' does not include any tax in respect of property or income from property levied by a local authority or a State Government or the Central Government.'
Therefore, the Legislature made it perfectly clear that whether the tax was levied by a local authority or a State Government or the Central Government, the tax could not be claimed as a permissible allowance under Section 9(1).
But the Legislature was anxious to give some relief to the tax payer and that relief was granted by enacting at the same time the third proviso to Section 9(2). But the relief that the Legislature granted was a limited relief. The relief was not with regard to what was covered by the new explanation to Section 9(1)(iv). The Legislature did not intend that the property owner should have relief with regard to all taxes levied by a local authority, a State Government or the Central Government, and therefore in the proviso to Section 9(2) it only gave relief with regard to a tax imposed by a local authority and even there the relief was not with regard to the whole of the tax, the relief was only to the extent of half the tax which was deemed to be payable by the tenant' with this further condition that that half must be paid by the landlord in order to claim exemption for the purpose of determining the annual letting value.
7. Now, the language used by the Legislature In the case of the explanation to Section 9(1)(iv) and in the third proviso to Section 9(2) is significant. In the case of the explanation the Legislature has dealt with the tax imposed by any of the three authorities; local authority, a State Government or the Central Government. In the case of the third proviso to Section 9(2) it has confined itself to the tax levied by a local authority. It is urged that there is no reason why the expression 'levy' should not be construed as meaning' 'collect'. In the first place it is difficult to understand why the Legislature should have emphasised the question of collection of a tax. It seems to be immaterial as to which is the agency selected for the collection of a tax.
What is more material and more relevant is toconsider the authority which imposes the tax, andtherefore from that point of view it is impossibleto accept the construction that both in the explanation to Section 9(1)(iv) and in the third proviso toSection 9(2) the Legislature was applying its mind to theagency which would be collecting the tax and notthe authority which would be imposing the tax.But there is this further difficulty in the way ofaccepting the construction suggested by Mr. Palkhi-vala, When we again turn to the third proviso itstates :
'Provided further that where the property, is tooccupation of a tenant and the taxes levied byany local authority in respect of the property are,under the law authorising such levy....'
Therefore, it is necessary that there must be a levyunder a law which authorises the local authorityto make that levy. It is impossible to suggest thatin this context 'levy' can mean 'collection'. Themunicipality must be given the power to imposethe tax and it must exercise that power.
If 'levy' is used in the latter part of the proviso and the only possible meaning to give to it is 'imposition', then it is not possible to give a different meaning to the very word 'levy' when it is used for the first time in the proviso, Therefore, to repeat what we have already said, the two conditions which the Legislature was emphasising were that a law must authorise the local authority to impose a tax and in pursuance of that authority the local authority must impose the tax.
The position would he made clear if we turn to the City of Bombay Municipal Act. Chapter VIII deals with municipal taxes and Section 139 refers to tha various taxes which can be imposed by the Bombay Municipality, and then we have a heading 'Property Taxes leviable' and Section 140 deals with the taxes which may be levied on buildings and lands by the municipality and shall be called the property tax. So this chapter deals with the power of the Bombay Municipality to levy taxes. The Bombay Municipality is authorised by this law to levy these taxes and it was these taxes which the Legislature was contemplating when it enacted the third proviso to Section 9(2) permitting a property owner to claim half of this tax as a deduction for the purpose of ascertaining the bona fide annual letting value.
8. Now, there is another anomaly which would arise if we were to accept Mr. Falkhivala's contention. As pointed out by Mr. Joshi, under the Bombay Finance Act it is not always the municipality that collects the tax. In some cases the power to collect is given to the Collector and not to a local authority, and there may be cases where there may be no municipality, in which case the collecting authority will be someone else.
If Mr. Palkhivala's contention were to be accept ed, it would result in this rather curious situation that wherever there is a municipality and where the municipality is the collecting authority, then the property owner will be entitled to deduct half of the urban immoveable property tax, but where the collecting authority is the Collector or some authority other than the local authority, the property owner would not be entitled to make the deduction. Such a construction would be opposed to principle, but if we accept the construction that the material question is not the collecting of the tax but the imposing of the tax, then the property owner will be entitled to the same relief or suffer from the same disability whoever the collecting authority might be. Therefore, looking at the matter from every point of view, it seems to us that the only natural and proper construction which could be placed upon the expression 'levy' used in the third proviso to Section 9(2) is 'impose' and not 'collect', and admittedly if that is the construction, then the assessee is not entitled to the relief' which he has sought.
9. The result is that we must answer the question submitted to us in the negative. Assessee topay the costs.
10. Answer in the negative.